State Bank of India and Indian Overseas Bank are among 13 state-owned Indian lenders that are to receive a total of 229.2 billion rupees (US$3.4 billion) in capital as the government seeks to contain risks in the banking industry while sustaining credit growth.
State Bank, the nation’s largest, will get 75.8 billion rupees, while Indian Overseas will receive 31 billion rupees, the Indian Ministry of Finance said in an e-mailed statement yesterday.
The infusion is to boost the government’s shareholdings in the lenders. A gauge of government lenders fell 0.2 percent as of 2:21pm in Mumbai, paring an earlier loss of 1.1 percent.
About 75 percent of the funds for each individual bank are being released now and the rest later depending on performance, according to the statement.
The government invested about 250 billion rupees in state-run lenders last financial year and had set the same target for the current one as Indian Prime Minister Narendra Modi’s government seeks to help lenders meet Basel III capital requirements.
“This was totally expected, but the front-loading part is good news,” said Nikhil Johri, chief investment officer at Trivantage Capital Management India Pvt in Mumbai. “Last time it was made throughout the year. This is clearly positive for the state-owned banks as their credit ratings are based on sovereign support.”
Johri said he has been buying shares of some government banks in the past six months.
State lenders have been under-capitalized compared with their private peers because of restrictions on their ability to sell equity to raise money.
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